Often, judgments from the UK are referred to in deciding matters in India owing to the similarity that exists between the British and Indian laws. That semblance also exists in the UK Arbitration Act and Indian Arbitration and Conciliation Act both of which were coincidentally framed in the year 1996.    

In Essar Oilfields Services Ltd. v Noscort Rig Management Pvt. Ltd. [2016], the UK judgment uncloaked the doubts about the definition of “costs” specified in their Act. The plaintiff, Noscort was due to recover damages from the defendant, Essar for the repudiatory breach of an operations management agreement. Essar deliberately withheld payments to the plaintiff to disable them financially. The company was aware that Norscot’s costs could not be financed from its resources and kept on deploying dilatory tactics. Hence, Norscot obtained Litigation Funding (LF) to the tune of ~£647,000 from a third party, under the arrangement that, in the event, Norscot succeeded, the funder would be entitled to either 300% of the funding or 35% of Norscot's recovery, whichever was greater. Norscot had claimed ~£1.94 million as recoverable cost for the sum due to the funder. The arbitration court went on to award the same. Essar challenged the award by arguing that “the governing expression is really “costs of the arbitration” and that in itself would exclude the costs of third-party funding, since the latter is not the cost of the arbitration, but the costs of funding it.”  Questions arose as to if costs incurred by a third party were eligible to be reimbursed by the defendant. Under the UK Arbitration Act, Sec.59(1) provides that "the costs of the arbitration" comprise, in addition to the fees and expenses of the arbitrator and arbitral institution, the legal or other costs of the parties. Regarding this, the jury asked Essar to volunteer something as “other costs” otherwise the expression would be wholly meaningless. At the same time, Sec.61(1) of the UK Arbitration Act, 1996 gives an arbitrator the general power to allocate between the parties "the costs of the arbitration".  Finally, Sec.63(3) provides that the arbitrator "may determine by award the recoverable costs of the arbitration on such basis as it thinks fit". Combining the effect of this section with that of Section 59 gave wide discretion to the arbitrator as to what costs it can award. This discretion includes the power to include in ‘other costs’ the cost of litigation funding. With that, it was concluded that "as a matter of language, context and logic “other costs” can include the costs of obtaining litigation funding".

Five years down the line, many sought to dismiss the judgment stating that Essar’s behaviour forced Norscot to seek help from a third party, and hence LF expenses could not be allowed in a wider sense. However in Tenke Fungurume Mining S.A. v Katanga Contracting Services it was again held that the judgment of Essar vs Norscot “cannot entirely be dismissed as specific to its facts and arbitral tribunals may be willing in wider circumstances to award such costs.”

 Comparison with the Indian Law: Section 31A of the Arbitration and Conciliation Act, 1996 defines the regime of costs. Under the explanation, it has been clarified “—For the purpose of this sub-section, “costs” means reasonable costs relating to …(iv) any other expenses incurred in connection with the arbitral or Court proceedings and the arbitral award.”

 Although not explicitly mentioned but noticing the similarities in both Acts, it can be argued that the costs incurred by third-party funders on behalf of the claimants are justified expenses and recoverable in nature. Thus, genuine claims should be fought for and Litigation Funding, if needed, should be sought

Effect on funders: This case is viewed as an opportunity for funders to increase the attraction for litigation funding since most clients tend to think that their recoverable claims would erode in value after payments to the funders. With these doubts diminishing, it increases trust and confidence value, as well as the need for LF, becomes clearer.

Conclusion: The Essar v Norscot judgment is considered a landmark decision since it paves the way for forthcoming judgments and demystifies doubts about third-party funding. After studying the facts of the abovementioned case, it is evident that litigation funders act as more than just guides. It could be said that they act as a protective cushion one can fall back on when on the verge of being crushed by the opponent.

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